For those that have been following the price of Bitcoin lately, its no news that the space cratered recently.
Below is a quick look at the price action over the past few weeks.
As we can see from the chart above, the price of Bitcoin:
Consistently failed to breach the $60k mark twice. The first time was after a >34% run-up and the second time it impeded a 20% run up. The third time did end up being the charm in this case, but things didn't quite go how bulls anticipated.
As we observed previously, there was no volume to accompany the upward move for Bitcoin, which led to the quick top out at $64k before an abrupt fall.
Bull Trap Construction
When the price broke above the $60k horizontal overhead resistance, many traders believed that the event represented the markets revving up for another explosive bullish price run by Bitcoin.
As shown in the initial picture for this piece, there were two significant failures at the $60k zone before the price was eventually able to cross above that point successfully.
However, as one can see, the price felt shortly after (with a steep decline; -22%).
Recent Price Action
On the daily, a massive bullish candle started forming for Bitcoin (April 25th, 2021).
As we can see on the above chart, the price has appreciated by +6.42% alone today (which is pretty significant).
Quick Note About Indicators
Since this shift in price action has occurred so abruptly, we won't be able to glean any meaningful insights from the daily resolution for Bitcoin.
But this is no problem. We just need to find a time resolution that's a divisible of 24 (counting the hours in a day; so we can segment the activity & indicator readings in an equitable manner for consistency and reliability in our interpretation).
H8 and H12 Resolution
For the math wizards out there, these resolutions represent 1/3rd and 1/2 of a day, respectively.
All time frames / chart resolutions will be clearly labeled throughout the rest of this write-up to minimize confusion for the reader.
Balance of Power RSI
To illustrate our point from above, let's quickly take a look at the Balance of Power RSI on the daily resolution.
From the chart above, we can't detect any discernible reason to feel "bullish" about Bitcoin's future price action.
However, this is primarily due to the fact that the daily resolution will only reflect price activity on a day-by-day basis and since the current candle is still forming, this data is not entirely accounted for on the daily resolution.
Additionally, one day of bullish price action won't have enough of an impact on the grand scheme for us to glean meaningful information on whether this recent price action represents a true shift in trend or not.
Evaluating the Balance of Power RSI on the H8 Resolution
Below is a screenshot of the Balance of Power RSI on the daily resolution:
As we can see from the chart above, the Balance of Power RSI tells a much different story when the time frame (resolution) is shrunk down to the H8 resolution.
We can clearly see the Balance of Power RSI reversing course sharply to the north starting as early as April 18th (despite the fact there was serious bearish price action during that time)
Now let's take a peak at what the price was showing us for Bitcoin on April 18th, 2021:
While this may seem bearish at first glance, its actually anything but.
Massive divergence between the Balance of Power RSI and the actual price action is a major sign that whales are moving in the direction of the Balance of Power RSI covertly.
In this case, we saw that the whales were utilizing the recent sell-off down to the sub-$50k region as an opportunity for further accumulation.
For those that don't know the Librehash RSI is the same as the regular RSI, with the addition of changes to the color of the indicator line, which are programmed to shift on the basis of whether the Rate of Change of the EMA(7) of the RSI(14) had crossed above the simple Rate of Change for the RSI.
We discovered a few years ago that factoring in the rate of change when assessing the RSI (on any time frame(), can have a profound impact on the readings that one can draw from the indicators.
Below is a quick look at the Balance of Power RSI on the H8 resolution:
As we can see in the chart above, the indicator's reading is largely ambivalent.
However, it is worth noting that the indicator is flashing bullish (according to our color-coded metrics), which tells us that there's more than likely a genuine bullish shift in the RSI's readings vs. unsmoothed 'noise'.
Librehash Reversion Ribbon V2
Briefly, we're going to head back to the charts to see what the Reversion Ribbon V2 is telling us about the price action for Bitcoin.
As always, there are at least a few observations that we can make about the readings provided to us by the Reversion Ribbon V2:
- The ribbon is currently below the Histogram (which is overall bearish); just like the MACD, when this occurs, it means that the MACD is dictating that the underlying asset that its tracking is in a bearish trend at that point in time.\
- The ribbon has twisted back green, which is the first time that it has definitively done that it has had a period where it was legitimately that color (for more than one period) since April 14th, 2021. While this doesn't seem that far in the past, we must consider the fact that this is still; on the H8 Resolution. Thus, that point was 27 periods ago (vs. 9 on the daily resolution). If this were the daily resolution, that would be nearly a month, which is pretty significant.
Candle Color Change is Preemptive For the Librehash Reversion Ribbon V2
Also, past three candles are painted green with the indicator turned on vs. only the current one being shown as green if we were to turn the indicator off
Now let's see what those candles appear as with the indicator turned off:
Astute observers will notice that one of the two candles isolated in the above screenshot was colored 'red'.
However, in our original screen (when we had the indicator on), we could see that both candles were green.
Reason For Discrepancy in Candle Colors
One of the best features of the Librehash Reversion Ribbon V2 is that it helps traders enter / exit positions with as much information and warning as possible by utilizing all options that TradingView provides for one to assess the price within one coded script (indicator).
Therefore, in addition to the common inferences and facts about the state of the market that one could deduce from the ribbon itself or its accompanying Histogram, we're also able to extrapolate that data to curate forecasts about whether the market is leaning bullish / bearish, despite what the Heikin Ashi candles may be showing us at that point in time.
Right now, Bitcoin looks tentatively poisd to recover some of the losses that it suffered earlier.
Warning About Smaller Timeframes
Since we're on a smaller timeframe than the one that we normally use, users need to be cautious about how far in the future they extrapolate this data.
Its best to cut one's projections by a factor of '3'.
For the daily resolution, we generally expect that our immediate forecasts will take roughly a day to play out (seven periods).
So we're going to apply this same logic to the H8 resolution (see why we picked divisible chart times?), to count 7 periods in advance, giving us 2 + 1/3rd days of forecasted price action.
Below is the R/R on the trade: